Over in Bloomberg View, Ramesh Ponnuru hands the mic to Grover Norquist:
Jeb Bush, [Lindsey] Graham and other Republicans who favor a deal that cuts spending and raises taxes are naive, in Norquist’s view. President Ronald Reagan, he notes, came to regret a similar deal he made in the 1982 budget because the spending cuts didn’t materialize. The 1990 deal, Norquist further argues, didn’t keep spending from coming in a little higher than the Congressional Budget Office had projected from 1991 to 1995.
You hear this often from Republicans: The reason you can’t make a deal that balances both spending cuts and tax increases is that the tax increases happen and the spending cuts don’t.
I’ve long meant to dig into exactly what happened to discretionary spending in the years directly following the 1990 deal. But as the American Enterprise Institute’s Alan Viard has written, we certainly have examples of deals that included both spending cuts and tax increases and have been implemented without incident:
In 1983, Ronald Reagan signed a Social Security compromise that included both payroll tax increases and benefit cuts. One of the benefit cuts, a six-month delay in the cost-of-living adjustment, took effect as scheduled in the year of enactment. The largest benefit cut, an increase in the normal retirement age, may have initially seemed more vulnerable to backsliding because it wasn’t slated to take effect until decades down the road. Yet, the first stage of that increase, with the age rising from 65 to 66, has now taken effect. The second stage, with the age rising from 66 to 67, is still on track to take effect in upcoming years, with nary a proposal from either party to block it.
Viard also gets at a point that’s long confused me: Let’s say Norquist is right that future congresses can’t be trusted to follow through on the spending cuts agreed to by the current congress. The implication of that isn’t just that multi-year deals that increase taxes and cut spending aren’t worth doing. It’s that multi-year deals that just cut spending aren’t worth doing. Viard again:
Besides, if there were no real spending cut deals, what would be the policy implication? That entitlements will be unilaterally cut by Republicans when they control all branches of government? Republicans’ track record offers no support for such a prediction. Or, that entitlements will never be cut? In that case, tax increases are unavoidable; blocking tax hikes today merely puts them off to the future and needlessly allows deficits to crowd out investment in the meantime.
Norquist might say that the implication is a “starve-the-beast” strategy: You hold tax rates down and you eventually force massive spending cuts. But we have the evidence on starve-the-beast strategies: They don’t lead to spending restraint, but to deficits. Here’s the late-William Niskanen, who served as one of Reagan’s top economists and later studied (pdf) the fiscal effects of starve-the-beast:
The relative level of federal spending over the period 1981 through 2000 was coincident with the relative level of the federal tax burden in the opposite direction; in other words, there was a strong negative relation between the relative level of federal spending and tax revenues. Controlling for the unemployment rate, federal spending increased by about one-half percent of GDP for each one percentage point decline in the relative level of federal tax revenues. Although not included in the sample for this test, the first three years of the current Bush administration were wholly consistent with this relation.
Got that? Tax cuts caused spending to rise, which caused deficits to grow. As Niskanen put it, “the demand for federal spending by current voters declines with the amount of this spending that is financed by current taxes. Future voters will bear the burden of any resulting deficit but are not effectively represented by those making the current fiscal choices.”
In other words, when voters have to pay for new spending out of taxes, they feel the bite and become less interested in more spending. But when anti-tax politicians keep taxes from rising no matter the level of spending, voters want more spending, as they’re not the ones paying for it. The likely outcome of Norquist’s pledge and a continued Republican resistance to deficit-reduction deals that include higher taxes isn’t less federal spending or lower deficits. It’s more federal spending and higher deficits.